BILL NUMBER: AB 599	CHAPTERED  09/24/00

	CHAPTER   600
	FILED WITH SECRETARY OF STATE   SEPTEMBER 24, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 23, 2000
	PASSED THE SENATE   AUGUST 31, 2000
	PASSED THE ASSEMBLY   AUGUST 31, 2000
	AMENDED IN SENATE   AUGUST 14, 2000
	AMENDED IN SENATE   SEPTEMBER 8, 1999
	AMENDED IN SENATE   JULY 14, 1999
	AMENDED IN ASSEMBLY   MAY 28, 1999
	AMENDED IN ASSEMBLY   MAY 18, 1999
	AMENDED IN ASSEMBLY   MAY 3, 1999

INTRODUCED BY   Assembly Member Lowenthal

                        FEBRUARY 19, 1999

   An act to amend Sections 6055 and 6203.5 of the Revenue and
Taxation Code, relating to taxation.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 599, Lowenthal.  Sales and use taxes:  worthless accounts.
   The Sales and Use Tax Law provides that a retailer is relieved
from liability for sales or use tax where the measure of the tax is
represented by accounts that have been found to be worthless and
charged off, as specified.  Existing law also provides that a
retailer may take as a deduction the amount found to be worthless and
charged off, if the retailer has previously paid the tax.
   This bill would provide, in the case of accounts held by a lender,
that a retailer or lender would be entitled to a deduction or refund
of the sales or use tax previously reported and paid by the retailer
if certain conditions are met.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 6055 of the Revenue and Taxation Code is
amended to read:
   6055.  (a) A retailer is relieved from liability for sales tax
that became due and payable, insofar as the measure of the tax is
represented by accounts that have been found to be worthless and
charged off for income tax purposes by the retailer or, if the
retailer is not required to file income tax returns, charged off in
accordance with generally accepted accounting principles.  A retailer
that has previously paid the tax may, under rules and regulations
prescribed by the board, take as a deduction the amount found
worthless and charged off by the retailer.  If these accounts are
thereafter in whole or in part collected by the retailer, the amount
collected shall be included in the first return filed after the
collection and the tax shall be paid with the return.  For purposes
of this subdivision, the term "retailer" shall include any entity
affiliated with the retailer under Section 1504 of Title 26 of the
United States Code.
   (b) (1) In the case of accounts held by a lender, a retailer or
lender who makes a proper election under paragraph (4) shall be
entitled to a deduction or refund of the tax that the retailer has
previously reported and paid if all of the following conditions are
met:
   (A) No deduction was previously claimed or allowed on any portion
of the accounts.
   (B) The accounts have been found worthless and written off by the
lender in accordance with the requirements of subdivision (a).
   (C) The contract between the retailer and the lender contains an
irrevocable relinquishment of all rights to the account from the
retailer to the lender.
   (D) The retailer remitted the tax on or after January 1, 2000.
   (E) The party electing to claim the deduction or refund under
paragraph (4) files a claim in a manner prescribed by the board.
   (2) If the retailer or the lender thereafter collects in whole or
in part any accounts, one of the following shall apply:
   (A) If the retailer is entitled to the deduction or refund under
the election specified in paragraph (4), the retailer shall include
the amount collected in its first return filed after the collection
and pay tax on that amount with the return.
   (B) If the lender is entitled to the deduction or refund under the
election specified in paragraph (4), the lender shall pay the tax to
the board in accordance with Section 6451.
   (3) For purposes of this subdivision, the term "lender" means any
of the following:
   (A) Any person who holds a retail account which that person
purchased directly from a retailer who reported the tax.
   (B) Any person who holds a retail account pursuant to that person'
s contract directly with the retailer who reported the tax.
   (C) Any person who is either an affiliated entity, under Section
1504 of Title 26 of the United States Code, of a person described in
subparagraph (A) or (B), or an assignee of a person described in
subparagraph (A) or (B).
   (4) Prior to claiming any deduction or refund under this
subdivision, the retailer who reported the tax and the lender shall
file an election with the board, signed by both parties, designating
which party is entitled to claim the deduction or refund.  This
election may not be amended or revoked unless a new election, signed
by both parties, is filed with the board.
  SEC. 2.  Section 6203.5 of the Revenue and Taxation Code is amended
to read:
   6203.5.  (a) A retailer is relieved from liability to collect use
tax that became due and payable, insofar as the measure of the tax is
represented by accounts that have been found to be worthless and
charged off for income tax purposes by the retailer or, if the
retailer is not required to file income tax returns, charged off in
accordance with generally accepted accounting principles.  A retailer
that has previously paid the amount of the tax may, under rules and
regulations prescribed by the board, take as a deduction the amount
found worthless and charged off by the retailer.  If these accounts
are thereafter in whole or in part collected by the retailer, the
amount collected shall be included in the first return filed after
the collection and the amount of the tax shall be paid with the
return.  For purposes of this subdivision, the term "retailer" shall
include any entity affiliated with the retailer under Section 1504 of
Title 26 of the United States Code.
   (b) (1) In the case of accounts held by a lender, a retailer or
lender who makes a proper election under paragraph (4) shall be
entitled to a deduction or refund of the tax that the retailer has
previously reported and paid if all of the following conditions are
met:
   (A) No deduction was previously claimed or allowed on any portion
of the accounts.
   (B) The accounts have been found worthless and written off by the
lender in accordance with the requirements of subdivision (a).
   (C) The contract between the retailer and the lender contains an
irrevocable relinquishment of all rights to the account from the
retailer to the lender.
   (D) The retailer remitted the tax on or after January 1, 2000.
   (E) The party electing to claim the deduction or refund under
paragraph (4) files a claim in a manner prescribed by the board.
   (2) If the retailer or the lender thereafter collects in whole or
in part any accounts, one of the following shall apply:
   (A) If the retailer is entitled to the deduction or refund under
the election specified in paragraph (4), the retailer shall include
the amount collected in its first return filed after the collection
and pay tax on that amount with the return.
   (B) If the lender is entitled to the deduction or refund under the
election specified in paragraph (4), the lender shall pay the tax to
the board in accordance with Section 6451.
   (3) For purposes of this subdivision, the term "lender" means any
of the following:
   (A) Any person who holds a retail account which that person
purchased directly from a retailer who reported the tax.
   (B) Any person who holds a retail account pursuant to that person'
s contract directly with the retailer who reported the tax.
   (C) Any person who is either an affiliated entity, under Section
1504 of Title 26 of the United States Code, of a person described in
subparagraph (A) or (B), or an assignee of a person described in
subparagraph (A) or (B).
   (4) Prior to claiming any deduction or refund under this
subdivision, the retailer who reported the tax and the lender shall
file an election with the board, signed by both parties, designating
which party is entitled to claim the deduction or refund.  This
election may not be amended or revoked unless a new election, signed
by both parties, is filed with the board.
